Howard's business is raising and harvesting peaches.On March 10, 2012, Howard purchased 10,000 new peach trees at a cost of $60,000.Howard does not elect to expense assets under § 179.If eligible, Howard takes additional first-year depreciation. Determine the cost recovery deduction for 2012.
A)$0.
B)$3,000.
C)$31,500.
D)$60,000.
E)None of the above.

Question

Quizplus · Accepted Answer

Since Howard does not expense assets under § 179, he must depreciate the cost of the new peach trees over their useful life. Peach trees typically have a useful life of 10 years for tax purposes, so each year Howard can deduct 1/10th of the cost of the trees as depreciation.

The cost of the trees is $60,000, so the annual depreciation deduction is $6,000 (=$60,000/10). However, since Howard purchased the trees on March 10, 2012, he can only deduct 10/12ths of the full year's depreciation, or $5,000 (=$6,000 x 10/12), as a cost recovery deduction for 2012.

In addition, Howard may be eligible for additional first-year depreciation under certain circumstances. However, the question does not provide enough information to determine whether he qualifies for this deduction, so we must assume that he does not take additional first-year depreciation.

Howard's Business Is Raising and Harvesting Peaches